In this note, we look at the 9M24 consolidated results of the major Indonesia banks under our coverage. Overall, the combined 9M24 results were in line with our FY24F earnings projections. Headline 9M24 profit reached IDR144tn (+7% y-y). The soft growth was partly driven by higher credit costs (CoC) of IDR49tn (+20% y-y). The rise in credit cost predominantly came from BBRI (+39% y-y), as the bank front-loaded loan write-offs of approximately IDR33tn in 9M24, above the pace of the bank’s estimated write-offs for FY24F at ~IDR40tn. Most of the write-offs came from the mass-market segments, as we believe BBRI needs to “clean up” some excess mass-market (ultra-micro / micro / PNM) lending made during 2020-2023.

Broadly, our covered major banks showed some earnings stability (and thus improved earnings visibility). Specifically, funding costs have stabilized (although liquidity in the banking system has stayed tight). Indeed, the average monthly cost of funding (CoF) of these major banks has been hovering at ~2.6% (p.a.). With stable funding costs, we expect more stable net interest margins (NIMs) for these banks, which would make better core earnings visibility (i.e., PPOP). Alongside potential large net maturing SRBI securities (Sekuritas Rupiah Bank Indonesia) in 4Q24F (approximately ~IDR13tn), we anticipate some liquidity injection in the banking sector (albeit small). This should provide some earnings improvement for these banks in FY25F, thereby reducing downside risks. If stable funding costs are sustained and considering the loan growth trajectory, NII growth would improve (thus resulting in better earnings trends without having to drive down cost of credit [CoC]). We also see some potential lending rate repricing for a small portion of loan portfolios, which would be one of the key catalysts for the sector. As shown in Fig 4-5 below, we have seen an upward LDR trend of late, which could possibly lead to some upward loan repricing (selectively) into FY25F.  These should mitigate possibly slower loan growth for FY25F in the system. Our observation also suggests that a larger portion of loan growth would go towards capital-intensive industries/ corporates. This could mean a lesser positive impact on GDP growth.

At the individual level, both BBCA and BBRI stand out in our coverage with solid PPOP growth of 14% and 13%, respectively, followed by BMRI at 7%, while BBNI showed negative growth of -5%. At the profit level, BBCA and BMRI stood out at 13% and 8%, respectively, for the 9M24 period (compared with BBNI’s +3% y-y / BBRI’s +2% y-y). BBRI’s lowest profit growth can be attributed to the bank’s loan clean-up for the mass market segment, in our view. These may continue into 2025F, but with potentially flat if not lower credit costs as write-off trends have decelerated.

On the balance sheet, YTD loan growth for BMRI, BBCA, BBRI and BBNI are at 14%, 8%, 7% and 6%, respectively. BBRI undertook necessary measures to slow micro loan growth. YTD 1H24, total micro loan grew by merely ~2%, whereby both Kupedes and KUR (subsidized micro) were at a slower pace. Much of this slowdown in Kupedes/KUR portfolio can be attributed to slower disbursements and/or higher write-offs. On deposits, we see overall deposits were up 8% y-y (with BMRI +15% / BBRI +6% / BBCA and BBNI +3%).

Following the 9M24 results, we retain BBCA as our preferred banking stock followed by BRIS (in the Syariah banking space). Given the tight liquidity in the system, in the event of an increase in funding costs for banks, we think BBCA and BMRI would have the least increases. And, on repricing of loan yields (or higher average yields), both would be in a better position to "reprice" their loan yields since they have more rate-adjustable loans. In general, corporate and/or commercial loans are more ‘priceable’ than ultra-micro/micro/salaried/small-scale loans. For BBRI, we think the bank can mitigate the risk of higher funding costs through gradual shifts in loan mix (e.g., from KUR towards non-subsidized high yields loans such as Kupedes) as well as lower incremental credit risks (hence, potentially lower credit costs).

Summary of 9M24 results

Below is a summary of 9M24 results for the major banks under our coverage. While we still see largely tight liquidity in the banking system, we have seen a more stable funding cost trend (hence NIMs). While still in early days, we think near-term funding costs could remain largely unchanged, and these could become near-term earnings drivers for banks.

1. 9M24 Net interest income of our covered major banks +4.0% y-y

● BBCA +9.3% y-y

● BBRI +4.6% y-y

● BMRI +3.3% y-y

● BBNI -5.2% y-y

2. 9M24 PPOP from major banks +9.5% y-y

● BBRI +14.0% y-y

● BBCA +12.9% y-y

● BMRI +7.2% y-y

● BBNI -4.5% y-y

3. 9M24 Credit costs for major banks CoC +19.6% y-y, implying CoC of 1.3% (+9bp y-y)

● BBNI -23.2% y-y, implying CoC of 1.0% (-36bp y-y)

● BBCA +3.3% y-y, implying CoC of 0.5% (-33bp y-y)

● BMRI +4.2% y-y, implying CoC of 0.7% (-20bp y-y)

● BBRI +39.7% y-y, implying CoC of 3.3% (+128bp y-y)

4. 9M24 implied risk-adjusted NIM improves to 4.4% for major banks (-31.5bp y-y / -3bp q-q)

● BBCA 5.4% (+17bp y-y) as NIM @ 5.9% (+40bp y-y)

● BBRI 4.4% (-65bp y-y) as NIM @ 7.7% (-35bp y-y)

● BMRI 4.3% (-75bp y-y) as NIM @ 4.9% (-57bp y-y)

● BBNI 3.4% (-3bp y-y) as NIM @ 4.4% (-38bp y-y)

5. 9M24 profits from major banks +6.8% y-y

● BBCA +12.8% y-y

● BMRI +7.5% y-y

● BBNI +3.3% y-y

● BBRI +2.4% y-y

Valuations and risks

BBCA (BBCA IJ, Buy) — We maintain our TP of IDR13,200, which is based on DuPont analysis with key parameters as follows: a risk-free rate of 6.5%, an equity risk premium of 7.8%, beta of 0.8x and a CAR-adjusted ROAE of 24.5%. Our TP implies 5.4x FY25F P/B (vs current valuation of 4.2x) and 26.9x FY25F P/E (vs current valuation of 21.0x). Key risks are worsening economic trends, tighter liquidity competition, and/or higher credit cost and opex growth.

BMRI (BMRI IJ, Buy) — Our TP of IDR8,700 is based on DuPont methodology, with key parameters as follow: a risk-free rate of 6.5%, an equity risk premium of 7.8%, beta of 1.03x, and a CAR-adjusted ROAE of 20.0%. We also use 2025F book as reference. Our TP implies 2.5x FY25F P/B and 12.6x FY25F P/E – compared with the current valuation of 2.1x FY25F P/B and 10.1x FY25F P/E. Risks are worse-than-expected macroeconomic trends, government intervention, tight liquidity competition, and higher credit cost (due to worsening asset qualities) and higher opex growth.

BBRI (BBRI IJ, Buy) — Our TP of IDR6,300 is based on DuPont analysis, with a risk-free rate of 6.5%, an equity risk premium of 7.8%, growth of 10.0%, beta 0.8x and a CAR-adjusted ROAE of 18.0%. We have also used 2025F book as reference. The implied multiples at our TP would be 2.9x 2025F book and 14.8x 2025F earnings (compared to current multiples of 2.1x and 11.1x, respectively). Risks are worsening macroeconomic trends, unfavorable regulatory changes, and tighter liquidity competition, which could increase funding costs, worsening credit quality which would raise credit costs, and higher opex.

BBNI (BBNI IJ, Buy) — Our TP of IDR6,600 is based on a DuPont analysis, assuming a risk-free rate of 6.5%, an equity risk premium of 7.8%, growth of 8.5%, beta 1.0x and a CAR-adjusted ROAE of 16.5%. We also use 2025F book as reference. The implied multiples at our TP are 1.4x 2025F book and 10.7x 2025F earnings (compared with current multiples of 1.2x and 9.3x, respectively). Key risks to our view are worsening macroeconomic trends, unfavorable regulatory changes, and tighter liquidity competition (which would increase funding cost), and worsening credit quality (which would raise credit costs).

BRIS (BRIS IJ, Buy) — Our TP of IDR3,800 is based on DuPont methodology, with key parameters as follows: a risk-free rate of 6.5%, an equity risk premium of 7.8%, beta of 1.2x and a CAR-adjusted ROAE of 18.1%. We have also used 2025F book value in deriving our TP. Our TP implies a FY25F P/B of 3.3x and a FY25F P/E of 22.0x. Risks are worsening macroeconomic trends, unfavorable regulatory changes, tighter liquidity competition that could increase funding costs, worsening credit quality that could raise credit costs, material management changes, and/or persistently high opex.

Fig. 1: Loan vs Deposits growth, y-y %

Fig. 2: Gross SRBI maturities

Fig. 3: Net liquidity

Fig. 4: LDR vs IDR lending rate %

Fig. 5: LDR vs Incremental LDR %

Fig. 6: Loan yields 1Q17-3Q24 % room for upward repricing in 2025F?

Fig. 7: CoF 1Q17-3Q24 %

Fig. 8: Loans vs. nominal GDP growth

Fig. 10: 9M24 Major banks Loans, NII, PPOP, & Net Profit

Fig. 13: NIM Comp %

Fig. 17: Bank-only LLR %

Fig. 18: LAR %

Fig. 19: LAR Cov %

Fig. 20: BMRI - FX and IDR LDR %

Fig. 21: BBRI - FX and IDR LDR %

Fig. 22: BBNI - FX and IDR LDR %

Fig. 23: BBCA - FX and IDR LDR %

Fig. 24: Avg ROAE (%) and CoV (x), 2005-2023

Fig. 25: CoF comparison (bank-only)

Fig. 26: Stabilizing CoF despite tight liquidity

Fig. 27: COF comparison – BMRI and BBCA %

Fig. 28: COF comparison – BBRI and BBCA %

Fig. 29: COF comparison – BBNI and BBCA %

Fig. 30: ROAE from 1Q18 to 3Q24

Fig. 31: ROAA from 1Q18 to 3Q24

Fig. 32: Major Indonesia banks results

Fig. 33: B/S ROAE %

Fig. 34: B/S ROAA %

Fig. 35: BBCA – improving risk-adjusted NIM trend

Fig. 36: BBCA - improving ROAE trend with less loan growth

Fig. 37: BMRI - Elevated ROAE quality

Fig. 38: BMRI - Stable risk-adjusted NIM outlook

Fig. 39: BBRI – improving ROAE (vs loan growth)

Fig. 40: BBRI - risk-adjusted NIM %

Fig. 41: BBNI - improving risk-adjusted NIM outlook

Fig. 42: BBNI - improving ROAEs with more risk-free EAs (Earning Asset)